The globe is now in the midst of a major semiconductor shortage, and it seems to be getting worse by the day. Although leading semiconductor manufacturing facilities are working along with government initiatives, microchip scarcity persists despite the rising demand caused by the broken supply chain.
Smart gadgets, tumble dryers, vehicles, electric toothbrushes, machines, dishwashers, and more all use microchips, the building blocks of technology. The COVID-19 epidemic started the present scarcity of semiconductors, but the lack of chips has caused a number of manufacturing lines to come to a grinding stop. Many investors who depend on silicon chips for electrical gadgets and autos were surprised by the worldwide scarcity of the small and ubiquitous electronic component. There has been an unusual deficit of semiconductors, which has resulted in delayed automobile deliveries, shortages of home goods, and more expensive cellphones until at least the first part of 2022.
Every sector is in danger.
At least 169 businesses, from tiny production centers to large conglomerates, are being affected by the semiconductor shortage, according to a study by investment bank Goldman Sachs. Chip manufacturing is still mostly centralized, which means the scarcity might become worse. As one of the world’s largest semiconductor purchasers, Apple Inc. was forced to delay the release of the iPhone 12 by two months owing to a microprocessor shortage.
For South Korean tech giant Samsung, a chip imbalance in the IT industry, particularly around specific set-goods and displays, has resulted in a delay in the introduction of its latest Galaxy Note smartphone. There are ongoing attempts by Siemens, one of the most prominent producers of automation systems for power grids, buildings, and trains, to decrease the danger of shortages. Consumer electronics manufacturers, such as those that make TVs, washing machines, and refrigerators, may be the next to feel the pinch of semiconductor shortages in the coming months.
Microchips are needed in around 50–150 cars on average. Many automakers had to temporarily shut down production because of the scarcity of materials. Due to a lack of electrical components, several car manufacturers are excluding high-end amenities from their automobiles. There are a number of companies that are abandoning navigation systems in cars, including Nissan,
Ram Trucks, and Renault, which are no longer putting digital screens behind the steering wheel in some models. As a result of the chip scarcity, rental car companies are unable to swiftly receive new vehicle orders at a time when demand is already at an all-time high. There is a worldwide scarcity of semiconductors, and Chinese companies are stockpiling more in-demand chips to alleviate the problem, but other companies are finding it more difficult to get these microchips.
How did the global shortage of semiconductors occur?
• Pandemic of the Coronavirus
As a result of the COVID-19 pandemic’s lockdown limitations, the industrial sectors were severely affected. Production operations were suspended for a short period of time, which slowed down the movement of goods across international borders and ports. New electronic equipment was also in high demand as a result of policies encouraging employees to work from home, growing enrollment in online courses, and improvements to current home entertainment systems.
Due to the stop in production of semiconductors, many manufacturers of electronic goods, such as mobile phones, laptops, and other gadgets, were unable to buy enough semiconductors to fulfill the escalating demand in the future. The supply chain of semiconductors was affected across a wide range of industries, including electronics, healthcare, cosmetics, construction, defense, and many more. As the epidemic eases, the current supply chain is being stretched to capacity by the surge in demand for electronic goods and cars.
• Buying in Haste
Many companies began stockpiling chips as soon as the news of a semiconductor shortage became public. Plunge purchasing contributed to a worsening supply shortfall, resulting in higher prices. As the chip shortage continues to wreak havoc on Tesla’s supply chain, CEO Elon Musk commented on the rise in panic purchasing on Twitter, saying, “Fear of running out is pushing every firm to overorder—like the toilet paper crisis, but on an epic scale.”
• Sanctions on Chinese technology by the United States government
USA During the coronavirus outbreak, former President Donald Trump aggravated the scarcity of semiconductors by waging a trade war with China. A severe supply chain disruption was triggered by the Trump administration’s measures against key Chinese semiconductor manufacturing. To begin with, the United States government forbade Huawei, China’s largest telecommunications company, from purchasing semiconductors produced in the United States. Ahead of the prohibition, Huawei had a stockpile of semiconductors and began snapping chips in order to gain market dominance. Secondly, some of SMIC’s clients are seeking new chip plants because of the lingering risk that new US government requirements may interrupt production.
• Severe Climate Change
Extreme weather events are impacting companies and supply systems throughout the globe as a result of global warming. Extreme weather conditions have a direct impact on semiconductor makers since most of their production hubs are located in locations that often experience power outages. Production at firms that operate 24 hours a day is halted when utility companies prioritize service to residential regions rather than industry centers during adverse weather conditions. Apple and Nvidia are two of Taiwan’s largest clients for sophisticated microchips. As a result of the region’s worst drought in more than 50 years, reservoirs have dried up. Every day, TSMC uses over 156,000 tons of water, and the water shortages are exacerbating the already dire situation of the semiconductor industry.
The surge in demand for electronic devices was not anticipated by industry experts, resulting in a massive demand-supply mismatch. A number of smartphone and automobile manufacturers have already reduced their semiconductor supply because of a predicted decrease in demand. To put it another way, a lack of supply was caused by a lack of forecasting for microchip manufacturing facilities.
How might the global shortage of microchips be alleviated?
In order to address the worldwide semiconductor problem, the half-trillion-dollar supply chain is one of the most complicated. It takes more than 1,000 steps and many international crossings for a single microchip to reach its final destination, which is the user. Therefore, the global semiconductor supply chain is affected by regional policy changes. Just concentrate on things that can be revived, like resources and a network of providers, since the worst is yet to come.
Increasing the Capacity of Production
Chip shortages throughout the world have increased the need to spend billions of dollars on new manufacturing lines and equipment upgrades. TSMC, the Taiwan Semiconductor Manufacturing Co. (TSMC), produces 80 percent of the microchips used in automobiles. TSMC plans to spend USD 2.87 billion to enhance mature capacity at its fab in Nanjing, China, and USD 12 billion to develop a chip facility in Arizona in order to meet global demand.
For its New Mexico wafer fab, US semiconductor giant Intel Corp. plans to spend roughly USD3.5 billion to enhance output. Global Foundries, a US-based semiconductor company, is also preparing to spend more than $4 billion on a new fabrication unit in Singapore to service the fast-growing automotive, 5G mobility, and security device industries.
Technology sovereignty is the goal.
Although China, Japan, Taiwan, and South Korea provide three-fourths of the world’s semiconductor supply, the COVID-19 epidemic has forced countries to spend billions of dollars in order to enhance manufacturing of microchips and minimize their reliance on other nations to satisfy their needs. US President Joe Biden issued an executive order on February 24, 2021, to investigate the US semiconductor supply chain. In addition, Biden is looking for $37 million in funding to help the United States ramp up its semiconductor manufacturing capacity. Europe produces fewer than 10% of all chips in the world.
The European Commission plans to increase chip production capacity by 20% in order to become more self-sufficient. Public subsidies for semiconductor manufacturing company formation have been offered by US tech giant Intel to the tune of $8 billion euros. Incentives from the federal government to the private sector may help raise the capacity of US fabs and reduce the supply-demand gap, but the assistance must be accessible at every stage of the semiconductor design and production process.
Cost-effective upgrades to the fabrication facility
In contrast to the 12-month wait for a fab expansion, a fab upgrade may bring new capacity online in as little as three months. The standard mechanical interface (SMIF) modification to an existing 200-mm fabrication facility may boost wafer production capacity without any extra starting material, labor, or processing expenses via the use of supplemental tools and improved cleanroom space.
A typical 1.3 percent increase in line yield from SMIF’s hands-off features and automation might result in an extra 325 wafers each month. With the addition of SMIF, a 200-mm fab’s wafer-environment control may be greatly improved and its service life extended.
Conclusion A reduction in the demand for chips can only help to alleviate the pressure on chip supplies. Demand, not production speed, may be more of a concern to some industry experts. There will be a worldwide microprocessor shortage until at least 2023 if production capacity cannot be increased by the construction of additional facilities, which might take up to two years.